M4: Financial Statements and Ratios

Financial Statements

are a collection of summary-level reports that present an organization's financial performance, financial position, and cash flows over a specific period.

Financial Ratio

expresses the relationship between two or more financial statement accounts using mathematical formulas.

Balance Sheet

is a financial statement that provides a "snapshot" of a company's financial position at a specific point in time.

Assets = Liabilities + Shareholders' Equity

Asset Formula

Assets

Resources controlled by the entity as a result of past transactions and events from which future economic benefits are expected to flow to the company.

Liabilities

Present obligations arising from past transactions or events, whose settlement is expected to result in an outflow of economic resources or assets.

Shareholders' Equity

The residual interest in the assets of the company after deducting all liabilities.

Income Statement

Presents the company's revenues, expenses, and net income over a specific accounting period. It measures the firm's financial performance and operating results.

Comprehensive Income

Includes recognized gains and losses that are not reported in the income statement but are reflected in the equity section of the financial statements.

Retained Earnings

Represents the accumulated profits earned by the company after deducting dividends and other distributions made to shareholders.

Changes in Equity

A reconciliation showing the beginning and ending balances of shareholders' equity during a reporting period, including contributions, profits, and distributions.

Financial statements

provide a clear picture of a company's financial condition and operating performance.

Construction Accounting System

Include the software, hardware, and personnel necessary to operate a construction accounting system

Cash

The easiest of the accounting method to use.

Accrual

Provide a more accurate financial picture by recognizing revenues when the company has the right to receive the revenues

Percentage of Completion

Requires construction companies to recognize revenues, expenses, and estimated profits on a construction project through thecourse of the project.

Completed Contract

Recognize revenues and expenses at the completion of the project

Balance Sheet

statement of the financial position, this gives information on what the company is worth from a book value perspective.

Income Statement

Shows their profit and loss over a period of time

Cash Flow Statement

Shows what happen to cash for a period of time, operating, activities, investing activities and financing activities

Financial Ratios

the relationship between financial statement item or accounts expressed in mathematical fashion.

Net Profit Ratio

measures the amount of net income per peso of sale

(netincome/revenue) x 100

What is the formula for net profit ratio

(net income/Total asset) x 100

What is the formula for ROA

Rate of return on Total Assets

measure the company’s profitability in using their total assets

asset turnover

signifies maangement efficiency in using their assets to generate sale revenue

gross profit ratio

measure the gross profit per peso of sales revenue.

(Gross profit/revenue) x 100

What is the formula for Gross profit ratio

Cash flow margin

indiate the firms ability to translate sales into cash

(Cash provided by operations/ revenue) x 100

What is the formula for cash flow margin

current asset- current liabilities

What is the formula for working capital

Working capital turnover ratio

gauge management efficiency in using current asset to generate net income

Rate of return on net working capital to generate revenue

measure management efficiency in using net working capital to generate revenue

(net income/ net working capital) x 100

What is the formula for Rate of return on net working capital to generate revenue

(net income/ equity) x 100

What is the formula for rate of return on owners equity

Rate of return on owners equity

indicates the amount of return per peso of owners equity

earning per share

measure the peso return on each ordinary share issued

net income/ total number per share

What is the formula for earnings per share

price earning ratio

indicates the relationship between market price of ordinary shares and the earnings of each ordinary shares

market price per share/ earning price per share

What is the formula for price earwning ratio

dividends payout

measures the percentage of the companys earning paid to the owner

dividends/ net income

What is the formula for dividends payout

retained earning to share capital

measures the probability of declaration of dividends by the firm

retained earnings/ share capital

What is the formula for retained earning to share capital